What is a term sheet?

What is a term sheet?

• A. A binding contract for loans
• B. A non-binding agreement summarizing primary loan terms
• C. An approved loan document
• D. A detailed report on borrower risks

Answer: (B)

A term sheet serves as a preliminary document that outlines the essential terms and conditions of a potential investment or loan agreement. It is generally non-binding, meaning that it indicates the agreement of the parties regarding the framework of a deal without creating legal obligations to proceed with the transaction. This allows both lenders and borrowers to negotiate the major points of a deal—such as interest rates, repayment schedules, and collateral requirements—before drafting a full agreement. The purpose of a term sheet is to lay the groundwork for further discussions and to clarify each party's expectations. Since it is non-binding, it provides flexibility for exploration and modification of terms as negotiations progress. In contrast, a binding contract for loans would create enforceable obligations between the parties, which is different from the preliminary nature of a term sheet. An approved loan document signifies that all necessary approvals have been obtained, which comes after the term sheet stage. A detailed report on borrower risks typically refers to an analysis conducted prior to issuing a final loan agreement, rather than the summary nature of a term sheet.

A term sheet serves as a preliminary document that outlines the essential terms and conditions of a potential investment or loan agreement. It is generally non-binding, meaning that it indicates the agreement of the parties regarding the framework of a deal without creating legal obligations to proceed with the transaction. This allows both lenders and borrowers to negotiate the major points of a deal—such as interest rates, repayment schedules, and collateral requirements—before drafting a full agreement.

The purpose of a term sheet is to lay the groundwork for further discussions and to clarify each party's expectations. Since it is non-binding, it provides flexibility for exploration and modification of terms as negotiations progress.

In contrast, a binding contract for loans would create enforceable obligations between the parties, which is different from the preliminary nature of a term sheet. An approved loan document signifies that all necessary approvals have been obtained, which comes after the term sheet stage. A detailed report on borrower risks typically refers to an analysis conducted prior to issuing a final loan agreement, rather than the summary nature of a term sheet.